Tuesday, September 18, 2007

Climbing Our Own Walls Of Worry

Every trader knows what it's like to be paralyzed by worry.

Sometimes it takes the form of catastrophizing "what-ifs": What if the market moves against me? What if I've lost my ability to trade?

Other times, worry manifests itself as perfectionism, as we become so concerned about getting all indicators to line up, so invested in catching exact tops and bottoms, that we miss out on opportunities.

On yet other occasions, worry can become so intrusive that we will exit positions at the worst times just to achieve some degree of relief.

Many people equate worry and anxiety, but the psychological research suggests otherwise. Worry is a ruminative cognitive process, whereas anxiety is the physiological experience of fear. In a very informative research review, Thomas Borkovec, Ph.D. of Penn State University and colleagues find that worry actually decreases the experience of anxiety in the short run.

In other words, worry is what people do to avoid anxiety; it is a defense against more fundamental fears. Worrying over catching an exact top or bottom, for example, may bind the much greater anxiety over losing money--or losing a trading career.

The problem with worry as a coping strategy is that it does not permit resolution of that more fundamental fear. By turning our attention to the negative aspect of details in our environment, worry does not allow us to engage in the facing of fears that is needed for anxiety reduction. In that sense, worry is the opposite of disclosure: openly acknowledging and talking/writing about one's concerns.

This is because we rarely worry over what we most find anxiety-provoking.

Interestingly, one of Borkovec's techniques for reducing worry is to establish a 30 minute period each day in which a person does nothing but worry! His research finds that shorter periods of worry serve an avoidant function, keeping us away from what we're really anxious about. When people engage in purposeful, extended worry, however, they cannot avoid and end up facing what's really on their minds.

Another technique helpful for worry is desensitization: using imagery to evoke underlying anxieties and normalizing our responses to those. In one variant, called flooding, extended exposure to images and actual experiences of anxiety-provoking situations lead to anxiety reduction.

Worry perpetuates anxiety by deflecting attention from what we find threatening. By getting at the root of our fears and facing them squarely--Pennebaker's research finds that writing openly about them for an extended time leads to emotional relief--we allow ourselves to move beyond them--and we reducing worrying.

So often, when we're worried about the next trade, the real source of our anxiety is Our Trading. It's an important distinction.

About Me

Author of The Psychology of Trading (Wiley, 2003), Enhancing Trader Performance (Wiley, 2006), and The Daily Trading Coach (Wiley, 2009) with an interest in using historical patterns in markets to find a trading edge. I am also interested in performance enhancement among traders, drawing upon research from expert performers in various fields. I took a leave from blogging starting May, 2010 due to my role at a global macro hedge fund. Blogging resumed in February, 2014, along with regular posting to Twitter and StockTwits (@steenbab).